Zesa tariffs hike panic

THE proposed 22 percent electricity tariff increase will further strain already struggling businesses in the country and push other cost drivers up, economic experts have warned.

In the context of lack of competitiveness and its negative effects on the economy, it does not make any sense for utilities and service providers to increase charges as this would destroy the few surviving businesses, they said.

The power utility, Zesa, has already applied for a 22 percent tariff hike to the Zimbabwe Energy and Regulatory Authority (Zera) with Energy and Power Development Minister Samuel Undenge recently indicating the proposal could soon be approved.

While the power utility argues the increase is meant to raise funding for new power projects to ensure steady supplies, the move has riled the business community and individual consumers who feel any increase would increase the cost burden on them.

"At this juncture . . . it doesn't make sense to bargain for wage and salary increases and raise prices of utilities within the national economy," said Gift Mugano, a renowned economic advisor, author and trade expert.

"Instead, as suggested in the monetary policy, the prevailing circumstances call for a downward adjustment in the prices of goods and services in order to promote competitiveness and ultimately for the recovery of the economy because further prices increases would only serve to cripple the economy."

An economic research associate with the Nelson Mandela Metropolitan University (SA), Mugano said the proposal by Zesa is retrogressive.

"What's disheartening is that, notwithstanding this prudent advice, we're still witnessing renewed efforts to raise prices of utilities particularly from Zesa.

"This move is retrogressive, insincere and a clear sign of a lack of appreciation of the reality," he blasted.

Businesses have vowed to oppose the increase with the Confederation of Zimbabwe Industries (CZI) embracing the "internal devaluation" approach, which seeks to contain costs and foster a downward review of charges in an effort to boost economic growth.

While consultations are underway, Zera would likely approve the tariff increase, which would see power charges rise from the current average US9c per kilowatt hour to US12c per kilowatt hour.

Minister Undenge says the increase would fill up the gap created by the drastic fall of water levels in Kariba, home to the 750MW capacity hydro-power station, due to drought.

The Affirmative Action Group (AAG) weighed in saying Zesa should find alternative means of raising funding other than increasing charges.

"We should be cutting costs and not raising them. Undenge shouldn't give an excuse for wanting to raise funds for other power projects. In fact, Zesa should find other ways of getting funding than raising tariffs," AAG Bulawayo-based economic analyst, Reginald Shoko, said.

He said Zimbabwe needs to internally devalue its economy to attain the competitive edge for industries to survive.

Despite incessant power cuts, thousands of consumers are struggling to clear arrears of close to $1 billion to Zesa, accrued since adoption of the multiple-currency system in 2009.

Regarded as a high cost country, Zimbabwe continues to play second fiddle to regional economies due to uncompetitiveness of her products due to high costs of production emanating from high mark ups to sustain high overheads epitomised in the hyperinflationary era prior to dollarisation in 2009.

Studies have shown that Zimbabwe has high utility tariffs, finance charges, average wages and salaries and a multiplicity of statutory fees.

According to a cost drivers analysis report submitted to the Office of the President and Cabinet last year, major cost drivers include but not limited to municipality tariffs, environmental management fees, National Social Security Authority charges, and other non-tariff barriers that increase the cost of doing business.

The continued appreciation of the US$ against major currencies such as the South African rand, has made imports much cheaper - further widening the import bill.

Economic experts say the combination of the above factors continues to put pressure on the balance of payment position as imports of finished goods and rampant smuggling have become the order of the day leading to company closures and job losses.